Drop in WA wool substantial but not unprecedented

Wool growth takes place across 12 months for most lots shorn in Australia, and as such reflects the growing conditions during that period. The growing conditions in large part depend on rainfall, and rainfall has been low in many of the southern sheep regions in Australia during the past year (read more here). As such it is to be expected that wool production will be lower due to lower sheep numbers and lower fleece weights.

Figure 1 compares the year-on-year percentage change in June to August volumes (farm bales) by micron category for Eastern and Western Australia. The increase in western 15 micron and fall in the western 25/26-micron categories have been truncated in the graph so we can see changes in the main categories more clearly.

The eastern volumes are down 13%, with the bulk of the fall in the broader merino categories, and a much lesser fall in fine merino micron categories. This fall matches the current AWPFC estimate for this current season (read more here). That skewed effect across the micron categories is expected as a function of dry conditions resulting in a finer wool clip. The volumes in Western Australia are down a hefty 27.6%, with the fall focussed on the broader micron categories and a much lower decline in the finer micron categories. The skewed effect here is also consistent with drought. The difference in Western Australia is the magnitude of the overall fall which looks to be driven in large part by lower sheep numbers. As mentioned in June, the industry does not yet have a formal estimate for the Western Australian flock in mid-2023 or mid-2024. We had better estimates of the flock size 60 years ago than we have today.

Figure 2 looks at changes in the eastern and western micron volumes for the same period, in farm bale terms. Changes in AWTA volumes are a lead indicator of changes in auction offerings (and sales). In recent years Western Australia has accounted for 20-22% of the 19 to 22-micron wool supply in Australia. In the three months to August, the west is accounting for 60% of the drop in 18 micron wool, 47% of the 19-micron, 38% of the 20 and 30% of 21-micron volumes. It is fair to say the drop in Western volumes is having an outsize impact on Australian production at present.

While the current drop in Western Australia wool volumes is substantial, it is not unprecedented. Figure 3 shows the rolling year-on-year change (three months smoothed) for Western Australian AWTA volumes (clean terms) as well as the Western Australian sheep flock (to 2022 where the official estimates are up to). Clearly, the western flock is under downward pressure. The question is how much is cyclical (driven by drought) and how much is structural. It would help if we actually had a good estimate of the numbers.